I have a question about what is disallowable costs on a ECC Option C contract. It would appear that a contractor has underestimated at tender stage the quantity of ground works, steel work and tarmac required. My question is whether contractor estimating error at tender stage is a disallowable cost.
I assume that where you say… “My question is whether the contractor estimating error at tender stage is a disallowable cost”, you mean - is the actual costs or the estimated cost with the error paid to the Contractor once the contract has been placed; disallowed costs only apply to payment provisions once the contract has been placed, not tender/pre-contract negotiations.
Under ECC Option C the Contractor is paid the actual or as the contract calls it “Defined Cost” of providing the works (Cl. 11.2(23)), not the estimated costs, so generally speaking the actual cost is paid and this means that the cost paid includes a correction of the errors (both positive or negative). This is not how other contracts work, so can be a surprise to both the Contractor or Employer if they haven’t read the contract. The intention that the contract price reflects the true cost; paying the true costs means that both positive and negative errors are corrected.
There are however a few caveats: While the estimating error is not a listed as a disallowed costs you will need to read Cl. 11.2(25) careful and check that the costs in question don’t fall under the bullets points listed. Another points to note is that the Defined Cost reflect the deduction for rebates, discounts, taxes, etc. as set out in Cl. 52.1, these points could be linked to estimating errors.